Budget slips on slower national economy

The federal budget has had a $2.3 billion hole punched in it by lower-than-expected company tax collections and Australians eager to get their hands on the first stage of the Morrison government's personal income tax package.

Figures from the Finance Department covering the first two months of the 2019-20 financial year show company tax – which had been predicted to deliver $100.6 billion to Canberra's coffers – down $2.1 billion on expectations.

Company tax collections are running $2.1 billion behind expectations early in the 2019-20 budget year.Credit:Louie Douvis

Strong company tax collections, particularly out of the iron ore sector on the back of strong prices, helped deliver the government a $700-million deficit in the 2018-19 budget. It was the best budget bottom line in more than a decade.

This year, Treasurer Josh Frydenberg is forecasting a surplus of $7.1 billion.

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In August alone, company tax collections this year are $1.5 billion lower than what the government garnered in 2018. Through the month, Canberra collected $6.6 billion in company tax, the worst August since 2016-17.

The government has also collected $200 million less than expected from ordinary workers although this is due to the new tax package. A rush of Australians to get the beefed-up low and middle-income tax offset meant refunds were $1 billion larger than had been anticipated.

In July, a record $8.6 billion in refunds was returned to taxpayers. It was a $2.2 billion or 34 per cent lift on refunds paid in July last year.

The petroleum resource rent tax has collected $200 million less than anticipated while superannuation taxes were $100 million lower.

While overall revenue is down, total expenses are running $150 million higher than forecast. Expenditures, however, can move around month-to-month due to the nature of payments.

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Combined, the budget is running $664 million behind what had been expected through July and August.

There was one sign the government's tax refunds may be working through the economy with GST collections so far this financial year slightly ahead of expectations.

But ANZ's head of Australian economics, David Plank, said the only sector of the economy showing a positive impact from the tax cuts and the Reserve Bank's reduction in official interest rates is in the housing market.

He said measures of consumer and business confidence were down on their long term averages while the most recent retail sales figures, covering August, showed a modest 0.4 per cent increase despite billions of dollars flowing into the pockets of taxpayers.

Only the housing sector, with lending to owner-occupiers and investors up over the past couple of months, was improving.

"Although households still feel quite positive about their current finances, recognising the impact of tax and interest rate cuts on their budgets, they are worried about the economic outlook, and so unwilling to increase spending," he said.